Tory Burch is avoiding the curse that hurt Coach and Michael Kors

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Tory Burch

Reuters/Allison Joyce

Tory Burch.

This could be one of the smartest business decisions Tory Burch ever makes.

Speaking at the WWD Apparel & Retail CEO Summit in New York last week, she said she is not going to take her eponymous fashion company public.

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"I think being a private company is a luxury, and that is something I have always thought," she said.

When Roger Farah, Burch's co-CEO, left his post at Ralph Lauren to join Tory Burch, the move was seen as a step toward an initial public offering.

But that's not the case. In fact, Farah never wants to work at a public company again, Burch said.

"Everyone thought Roger came to us to [take] the company public," Burch said at the conference, adding that she plans on keeping her business "a private company as long as possible."

Companies go public to raise funds, give their backers an easy way to cash out, and gain a currency - their newly listed shares - that can be used in acquisitions or to recruit new talent. But, for this, they become subject to the short-term demands and scrutiny of the stock market.

"I think Burch's decision reflects the thinking of a lot of good entrepreneurs," said Brian Hamilton, chairman of Sageworks, which conducts financial analysis on private companies. "She can focus on her company's success and operations outside of the day-to-day volatility of the markets."

For luxury retailers, there's another reason to stay out of the IPO market: investors' demands for profit and sales growth have pushed brands - from Michael Kors to Coach - to expand too fast. The ubiquity that follows can be the kiss of death for a brand's value.

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Michael Kors went public in 2011, and the company was seen as a tremendous success, in part because of demand for its handbags and watches. But this year, after the brand had expanded to more than 4,000 locations - including non-luxurious stores such as Macy's and outlet stores - its sales growth began to slow and disappoint investors.

One outcome of the growth into outlets and stores that discount heavily is that customers no longer want to pay full price. And experts know that the more accessible a company is, the less luxurious it is. Outlet stores, for instance, are total brand killers.

One could say the same about brands such as Coach and Ralph Lauren, both of which are widely distributed - in luxurious, standalone stores as well as mid-tier department stores and outlet centers.

coach bag

REUTERS/Fred Prouser


Coach, in fact, showed this week that it is making progress digging itself out of the over-expansion hole. It has been renovating stores, cutting back on promotions, and offering updated designs that customers will want to pay full price for.

Word that the Coach brand's third-quarter sales fell just 9%, compared with double digit declines in the past, was greeted as good news by investors. But it still has work to do - the largest portion of Coach's sales are still coming from discounted factory outlets, according to a recent Morgan Stanley survey.

The regular ups and downs of business are magnified when you are a public company.

"If you're private, you don't have to make a disclosure to the market about how you are doing," Mario Ortelli, senior vice president of European luxury at Sanford C. Bernstein said to Business of Fashion earlier this year. "If Chanel was not posting incredible results, no one would know. But if they were public and this was known, some customers would say that the brand was not cool anymore - this is a risk."

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incheon seoul south korea airport chanel store

Steve Kovach/Business Insider

Chanel is a privately held luxury company.

Of course, there's an allure to going public - especially lately.

"We've seen an IPO boom over the past few years; many companies have been seeking, and receiving, extraordinary valuations heading into their public offerings. The appeal of going public has been very high. But the recent market volatility serves as a grim reminder that bull markets don't last forever," Sageworks's Hamilton said.

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